UNITED STATES
                           SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, D.C. 20549


                                       FORM 10-Q



            X    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
         -------
                 THE SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended September 30, 2002
                                                           ---------

                     TRANSITION REPORT PURSUANT TO SECTION 13 OR
         ---------
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                           For the transition period from to

                             Commission file number 1-14762

                               THE SERVICEMASTER COMPANY
                 (Exact name of registrant as specified in its charter)

                                  Delaware 36-3858106
                     (State or other jurisdiction of (IRS Employer
                                  Identification No.)
                         incorporation or organization)

2300 Warrenville Road, Downers Grove, Illinois                 60515-1700
(Address of principal executive offices)                       (Zip Code)

                                  630-271-1300
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X     No   .
                                      ---      ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 301,344,000 shares of common stock on November 7, 2002.








<PAGE>





                                TABLE OF CONTENTS

                                                                            Page
                                                                             NO.

THE SERVICEMASTER COMPANY (Registrant) -

PART I.  FINANCIAL INFORMATION
------   ---------------------
Item 1 : Financial Statements

Consolidated Statements of Income for the three and nine
 months ended September 30, 2002 and September 30, 2001                        2

Consolidated Statements of Financial Position
   as of September 30, 2002 and December 31, 2001                              4

Consolidated Statements of Cash Flows for the nine months
   ended September 30, 2002 and September 30, 2001                             5

Notes to Consolidated Financial Statements                                     6

Item 2: Management Discussion and Analysis of Financial
   Condition  and Results of Operations                                       15

Item 3:  Quantitative and Qualitative Disclosures About
   Market Risk                                                                24

Item 4: Controls and Procedures                                               25


PART II.  OTHER INFORMATION
--------  ------------------
Item 6:  Exhibits and Reports on Form 8-K                                     26

Signature                                                                     27

Certifications                                                                28

Exhibit 99.1:  Certification of Chief Executive Officer Pursuant
to Section 1350 of  Chapter 63 of Title 18 of the
United States Code                                                            30

Exhibit 99.2:  Certification of Chief Financial Officer Pursuant
to Section 1350 of Chapter 63 of Title 18 of the
United States Code                                                            31





                                       1
<PAGE>











<TABLE>




                                PART I. FINANCIAL INFORMATION

                                  THE SERVICEMASTER COMPANY
                              CONSOLIDATED STATEMENTS OF INCOME
                            (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                                 Three Months Ended               Nine Months Ended
                                                                                   September 30,                    September 30,
                                                                                    (Unaudited)                      (Unaudited)
                                                                           2002              2001             2002             2001
                                                                       ------------    ------------      ----------     -----------
<S>                                                                      <C>             <C>             <C>             <C>
OPERATING REVENUE ..................................................     $1,013,484      $  981,552      $2,779,676      $2,716,830

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ........................        690,028         675,489       1,907,035       1,884,266
Selling and administrative expenses ................................        212,196         199,672         581,391         524,390
Goodwill, trade name and other intangible amortization (1)  ........          2,508          17,797           7,578          52,997
                                                                        -----------     -----------     -----------     -----------
Total operating costs and expenses .................................        904,732         892,958       2,496,004       2,461,653
                                                                        -----------     -----------     -----------     -----------
OPERATING INCOME ...................................................        108,752          88,594         283,672         255,177

NON-OPERATING  EXPENSE (INCOME):
Interest expense ...................................................         17,030          30,948          61,296          97,347
Interest and investment income .....................................         (1,612)         (7,409)         (8,145)        (14,672)
Minority interest and other expense, net ...........................          1,905           2,248           5,489           3,312
                                                                        -----------     -----------     -----------     -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                        91,429          62,807         225,032         169,190
Provision for income taxes .........................................         33,619          27,077          82,687          71,435
                                                                        -----------     -----------     -----------     -----------

INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
     ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ..............         57,810          35,730         142,345          97,755

Income from discontinued operations, net of income taxes (2) .......            527          10,393             684          22,305

Extraordinary gain (loss), net of income taxes (3) .................            -               -            (9,229)          6,003

Cumulative effect of accounting change (4) .........................            -               -           (44,577)            -
                                                                        -----------     -----------     -----------     -----------
NET INCOME .........................................................    $    58,337     $    46,123     $    89,223       $ 126,063
                                                                       ============    ============      ==========     ===========

PER SHARE:
BASIC EARNINGS PER SHARE:
Income from continuing operations before extraordinary items
   and cumulative effect of accounting change.......................           $.19            $.12            $.47            $.33

Discontinued operations, net (2) ...................................              -             .03             .01             .07

Extraordinary gain (loss) (3).......................................              -               -            (.03)            .02

Cumulative effect of accounting change (4)..........................              -               -            (.15)              -
                                                                       ------------    ------------      ----------       ---------
                                                                               $.19            $.15            $.30            $.42
                                                                       ============    ============      ==========       =========
SHARES                                                                      301,093         298,925         300,805         298,425


DILUTED EARNINGS PER SHARE:
Income from continuing operations before extraordinary items
   and cumulative effect of accounting change.......................           $.19            $.12            $.46            $.33

Discontinued operations, net (2) ...................................              -             .03              -              .07

Extraordinary gain (loss) (3).......................................              -               -            (.03)            .02

Cumulative effect of accounting change (4)..........................              -               -            (.14)              -
                                                                       ------------    ------------      ----------     -----------
                                                                               $.19            $.15            $.29            $.42
                                                                       ============    ============      ==========     ===========
SHARES                                                                      313,649         312,524         315,155         311,044

Dividends per share.................................................          $.105            $.10           $.305            $.30
                                                                       ============    ============      ==========     ===========

</TABLE>





                                       2
<PAGE>






(1) The Company adopted SFAS 142, "Goodwill and Other Intangible Assets",  which
eliminates the  amortization  of goodwill and intangible  assets with indefinite
lives  beginning in 2002.  Had the  provisions of SFAS 142 been applied to 2001,
amortization  expense would have been reduced by $15.4 million  ($10.4  million,
after-tax) and $45.7 million ($31.0  million,  after-tax) for the three and nine
month periods ended September 30, 2001 respectively.

(2) In the fourth quarter of 2001, the Company's  Board of Directors  approved a
series of actions related to the strategic review of its portfolio of businesses
that commenced earlier in 2001. These actions included the sale in November 2001
of the Company's  Management  Services  business as well as the decision to exit
certain   non-strategic  and  under-performing   businesses  including  TruGreen
LandCare  Construction,  Certified  Systems,  Inc. and certain other operations.
These operations are included in "Discontinued  Operations" in 2001.  During the
third  quarter  of  2002,  the  Company  sold its  Terminix  UK  operations  and
reclassified the financial results from "Continuing Operations" to "Discontinued
Operations" for all periods presented.

(3) The Company  purchased a portion of its public debt securities in the second
quarter of 2002 and in the first  quarter of 2001.  The Company has  recorded an
extraordinary gain (loss) from the early extinguishment of debt related to these
repurchases.

(4) In the second quarter of 2002, the Company changed its accounting method for
customer  acquisition costs in its American Home Shield business.  In accordance
with  Accounting  Principles  Board Opinion No. 20,  "Accounting  Changes",  the
cumulative  effect of this change in  accounting  policy has been recorded as of
the beginning of fiscal 2002. The impact of retroactively applying the change in
method of accounting to 2001 would have reduced pretax  earnings by $1.1 million
($.7 million,  after-tax)  and $8.9 million ($5.8  million,  after-tax)  for the
three and nine month periods ended September 30, 2001.



                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






                                       3
<PAGE>



<TABLE>




                                       THE SERVICEMASTER COMPANY
                             CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                       (IN THOUSANDS; UNAUDITED)
                                                                                          As of
                                                                                                  December 31,
ASSETS                                                                    September 30,               2001
                                                                               2002            (Restated, Note 6)
                                                                           -----------            -----------
CURRENT ASSETS:
<S>                                                                        <C>                    <C>
Cash and cash equivalents ...........................................      $   192,600            $   420,469
Marketable securities ...............................................           60,440                 61,561
Receivables, less allowance of $30,268 and $27,188, respectively ....          406,528                351,761
Inventories .........................................................           72,656                 69,518
Prepaid expenses, deferred costs and other assets ...................          116,848                167,915
Deferred taxes ......................................................           88,859                 60,600
                                                                           -----------            -----------
       Total Current Assets .........................................          937,931              1,131,824
                                                                           -----------            -----------

PROPERTY AND EQUIPMENT:
At cost .............................................................          462,808                453,378
Less: accumulated depreciation ......................................          289,122                272,441
                                                                           -----------            -----------
  Net property and equipment ........................................          173,686                180,937
                                                                           -----------            -----------

OTHER  ASSETS:
Goodwill ............................................................        1,913,222              1,902,934
Intangible assets, primarily trade names ............................          261,237                264,789
Assets of discontinued operations ...................................            5,605                 64,068
Notes receivable ....................................................           57,953                 59,204
Long-term securities and other assets ...............................           68,155                 70,983
                                                                           -----------            -----------
       Total Assets .................................................      $ 3,417,789            $ 3,674,739
                                                                           ===========            ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ....................................................      $   130,331            $   116,165
Accrued liabilities:
   Payroll and related expenses .....................................           91,488                 82,340
   Insurance and related expenses ...................................           48,585                 40,019
   Accrued income taxes .............................................           60,958                 25,237
   Other ............................................................           90,339                128,057
Deferred revenues ...................................................          387,563                355,129
Current portion of long-term debt ...................................           31,404                 35,159
                                                                           -----------            -----------
       Total Current Liabilities ....................................          840,668                782,106
                                                                           -----------            -----------

LONG-TERM DEBT ......................................................          795,987              1,105,518

OTHER LONG-TERM LIABILITIES:
     Deferred tax liability .........................................          271,735                269,000
     Liabilities of discontinued operations .........................           51,132                 93,769
     Other long-term obligations ....................................          123,966                 91,708
                                                                           -----------            -----------
        Total Other Long-Term Liabilities ...........................          446,833                454,477
                                                                           -----------            -----------

MINORITY INTEREST ...................................................          101,851                102,677

Commitments and Contingencies

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1 billion shares; issued
     and outstanding 301,052 and 300,531 shares, respectively .......            3,011                  3,005
Additional paid-in capital ..........................................        1,050,465              1,037,969
Retained earnings ...................................................          344,081                346,232
Accumulated other comprehensive loss ................................           (5,477)                (1,888)
Restricted stock ....................................................           (1,151)                (1,285)
Treasury stock ......................................................         (158,479)              (154,072)
                                                                           -----------            -----------
       Total Shareholders' Equity ...................................        1,232,450              1,229,961
                                                                           -----------            -----------
       Total Liabilities and Shareholders' Equity ...................      $ 3,417,789            $ 3,674,739
                                                                           ===========            ===========

                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


</TABLE>

                                       4
<PAGE>



<TABLE>


                                       THE SERVICEMASTER COMPANY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (IN THOUSANDS)
                                                                                              Nine Months Ended
                                                                                                September 30,
                                                                                                 (Unaudited)
                                                                                            2002               2001
                                                                                       -------------      -------------
<S>                                                                                     <C>                <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ........................................         $ 420,469          $  56,133

CASH FLOWS FROM OPERATIONS:
NET INCOME ....................................................................            89,223            126,063
     Adjustments to reconcile net income to net cash flows from operations:
        Income from discontinued operations ...................................              (684)           (22,305)
        Extraordinary (gain) loss .............................................             9,229             (6,003)
        Cumulative effect of accounting change ................................            44,577                -
        Depreciation expense ..................................................            37,124             37,056
        Amortization expense ..................................................             7,578             52,997
     Tax refund from prior years payments .....................................               -               21,000
     Deferred income tax expense ..............................................            64,986             75,796
         Change in working capital, net of acquisitions:
            Receivables .......................................................           (52,131)           (70,552)
            Sale of receivables ...............................................               -               92,500
            Inventories and other current assets ..............................           (22,835)           (37,611)
            Accounts payable ..................................................            13,866            (16,917)
            Deferred revenues .................................................            32,184             49,530
            Accrued liabilities ...............................................            19,692              8,586
         Other, net ...........................................................             2,726              1,972
                                                                                        ---------          ---------
NET CASH PROVIDED FROM OPERATIONS .............................................           245,535            312,112
                                                                                        ---------          ---------

 MEMO:  NET CASH PROVIDED FROM OPERATIONS
       (EXCLUDING PRIOR YEAR SALE OF RECEIVABLES AND TAX REFUNDS) .............           245,535            198,612

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ......................................................           (38,861)           (32,231)
      Sale of equipment and other assets ......................................             2,031              7,837
      Business acquisitions, net of cash acquired .............................           (14,128)           (26,689)
      Proceeds from business sales and minority interests .....................               -                4,925
      Notes receivable, financial investments and securities ..................            (1,031)           (18,449)
                                                                                        ---------          ---------
NET CASH USED FOR INVESTING ACTIVITIES ........................................           (51,989)           (64,607)
                                                                                        ---------          ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt ....................................................          (303,129)          (240,120)
      Purchase of ServiceMaster stock .........................................           (14,529)            (1,308)
      Shareholders' dividends .................................................           (91,374)           (88,921)
      Other, net ..............................................................            15,385              9,009
                                                                                        ---------          ---------
NET CASH USED FOR FINANCING ACTIVITIES ........................................          (393,647)          (321,340)
                                                                                        ---------          ---------

                                                                                        ---------          ---------
CASH PROVIDED FROM (USED FOR) DISCONTINUED OPERATIONS .........................           (27,768)            58,925
                                                                                        ---------          ---------

CASH DECREASE DURING THE PERIOD ...............................................          (227,869)           (14,910)
                                                                                        ---------          ---------

CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 .....................................         $ 192,600          $  41,223
                                                                                        =========          =========
</TABLE>


                       SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                       5
<PAGE>





                            THE SERVICEMASTER COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE  1:  The  consolidated   financial   statements  include  the  accounts  of
ServiceMaster and its subsidiaries,  collectively  referred to as "the Company".
Intercompany transactions and balances have been eliminated in consolidation.

NOTE 2: The consolidated  financial statements have been prepared by the Company
in accordance with generally accepted accounting  principles and pursuant to the
rules and  regulations of the Securities  and Exchange  Commission.  The Company
suggests  that  the  quarterly  consolidated  financial  statements  be  read in
conjunction  with the  consolidated  financial  statements and the notes thereto
included in the Company's  latest Annual Report to  Shareholders  and the Annual
Report to the Securities and Exchange Commission on Form 10-K for the year ended
December  31,  2001.  The   consolidated   financial   statements   reflect  all
adjustments,  which are in the  opinion of  management,  necessary  for the fair
presentation of the financial position, results of operations and cash flows for
the interim  periods.  The results of operations  for any interim period are not
necessarily indicative of the results which might be obtained for a full year.

As further  discussed in Note 5,  effective  January 2002,  the Company  adopted
Statement of Financial  Accounting  Standards  ("SFAS") No. 142,  "Goodwill  and
Other Intangible Assets". In addition, in the second quarter the Company changed
its accounting method for customer acquisition costs in its American Home Shield
business.  In  accordance  with  Accounting  Principles  Board  Opinion  No. 20,
"Accounting Changes",  the cumulative effect of this change in accounting policy
(totaling  a charge  of $.14 per  diluted  share)  has been  recorded  as of the
beginning  of fiscal 2002.  The Company has also  announced  that,  beginning in
2003,  it will begin  accounting  for  employee  stock  options as  compensation
expense  in  accordance   with  SFAS  No.  123,   "Accounting   for  Stock-Based
Compensation."  As currently  required by the  Statement,  the Company  plans on
prospectively  applying the  provisions  of this  Statement to new option grants
awarded  subsequent to 2002. If the Company continues its historical  pattern of
option  granting,  the impact  would be  approximately  $.005 per share in 2003,
growing to approximately $.03 per share over five years.

NOTE 3: The Company has identified the most significant accounting policies that
impact its financial  statements.  These relate primarily to revenue recognition
and the deferral of related  costs.  See Note 5 regarding a change of accounting
for costs associated with warranty contracts.  No other change in accounting for
deferred  costs  has  occurred  since  year-end  2001.  The  following   revenue
recognition  policies have not changed since year-end.  Revenues from lawn care,
non-baiting  termite,  pest  control,   heating/air  conditioning  and  plumbing
services are recognized as the services are provided.  Revenues from landscaping
services are  recognized  based upon agreed  monthly  contract  payments or when
services are  performed  for  non-contractual  arrangements.  Revenues  from the
Company's  commercial  installation  contracts,  primarily relating to HVAC, are
recognized  on the  percentage  of  completion  method in the ratio  that  total
incurred costs bear to total estimated costs. Termite and home warranty services
typically are sold through annual  contracts for a one-time,  up-front  payment.
Direct costs of these contracts  (service costs for termite  contracts and claim
costs for warranty  contracts) are expensed as incurred.  The Company recognizes
revenue over the life of the  contracts  in  proportion  to the expected  direct
costs.  Franchised revenues (which in aggregate  represents  approximately three
percent of consolidated  totals)  consist of continuing  monthly fees based upon
the  franchisee  revenue  and  initial  franchise  fees.  Monthly fee revenue is
recognized when reported from the franchisee and collectibility is assured,  and
initial fee revenue,  which is fixed, is recognized at the time of sale and when
collectibility is assured. Customer acquisition costs, which are incremental and
direct costs of obtaining  the  customer,  relating to several of the  Company's
contracts are deferred and amortized over the life of the contract in proportion
to revenue recognized.  These costs include sales commissions and direct selling
costs which can be shown to have  resulted  in a  successful  sale.  The Company
expenses the cost of  advertising  the first time the  advertising  takes place,
except for  direct-response  advertising at Terminix  which is  capitalized  and
amortized  over its expected  period of future  benefits.  This  direct-response
advertising consists primarily of direct-mail promotions,  for which the cost is
capitalized and amortized over the one year customer contract life. At September
30, 2002,

                                       6
<PAGE>


approximately $2 million of advertising  costs were deferred.  TruGreen ChemLawn
incurs  significant  sales and other costs at the  beginning  of the fiscal year
that  directly  relate  to  supporting  services  to  customers  throughout  the
production  season  (April  through  October).  These  costs  are  deferred  and
recognized in proportion to the contract  revenue over the year. These costs are
not  deferred  beyond the  calendar  year-end.  The Company has $388  million of
deferred  revenues at September 30, 2002, which consist of customer  prepayments
for lawn care services and payments  received for annual  contracts  relating to
home  warranty  and  termite  baiting  services.  The  revenue  related to these
services will be recognized as the service is performed or over the  contractual
period.

The preparation of the financial  statements requires management to make certain
estimates  and  assumptions   required  under  generally   accepted   accounting
principles which may differ  materially from the actual results.  Disclosures in
the 2001 Annual Report  presented the significant  areas that require the use of
management's  estimates and discussed how  management  formed its judgment.  The
areas discussed included the allowance for uncollectible  receivables,  accruals
for self-insured retention limits related to medical, workers compensation, auto
and general  liability  insurance,  the possible  outcome of litigation  and the
useful  lives for  depreciation  and  amortization  expense.  There have been no
changes in these areas or methodologies in 2002.

NOTE 4: The  Company  carries  insurance  policies on  insurable  risks which it
believes to be appropriate.  The Company  generally has  self-insured  retention
limits and has  obtained  insured  layers of  coverage  above such  self-insured
retention  limits.  Accruals  for  self-insurance  losses  are made based on the
Company's  claims  experience and actuarial  assumptions.  The  establishment of
appropriate reserves is an inherently  uncertain process.  Reserve estimates are
regularly reviewed and updated using the most current information available. Any
resulting  adjustments,  which could be  material,  are  reflected in the period
identified.

The Company  has  certain  liabilities  with  respect to  existing or  potential
claims,  lawsuits,  and  other  proceedings.   The  Company  accrues  for  these
liabilities  when it is  probable  that future  costs will be incurred  and such
costs can be  reasonably  estimated.  The  Company  believes  that  other  legal
proceedings and currently pending  litigation  arising in the ordinary course of
business  will  not  have  a  material  effect  on  the  consolidated  financial
statements.

NOTE 5: The Company periodically reviews its accounting practices to ensure that
its adopted policies appropriately reflect current conditions in its businesses,
the  industries it operates in, and the  regulatory  and business  environments.
During the second  quarter,  the Company  reviewed and  compared its  accounting
principles for its American Home Shield business with its direct  competitors as
well as with companies  operating in various aspects of the insurance  industry.
Although  there is some diversity of practice in these  industries,  the Company
determined to change its policy to the more prevalent and conservative method of
accounting  for deferred  acquisition  costs from SFAS No. 60,  "Accounting  and
Reporting by  Insurance  Enterprises",  where  deferred  acquisition  costs were
amortized  over the expected  customer life to a more  preferable  method,  FASB
Technical Bulletin No. 90-1, "Accounting for Separately Priced Extended Warranty
and  Product  Maintenance  Contracts",  where  deferred  acquisition  costs  are
amortized  over  the  initial  contract  life.  Such  accounting   principle  is
consistent with the Company's understanding of the methods used by others in the
warranty  industry.  This new method of  accounting  is  expected to result in a
reduction  of $.03 per  share in  reported  earnings  in 2002,  but will have no
impact  on cash  flow  in the  current  or  future  years.  In  accordance  with
Accounting Principles Board Opinion No. 20 "Accounting Changes",  the cumulative
effect  of this  change  in  accounting  policy  (totaling  a charge of $.14 per
diluted share) has been recorded as of the beginning of fiscal 2002.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No.142,  "Goodwill and Other Intangible Assets"
(SFAS 142).  SFAS 142 requires that after December 31, 2001,  existing  goodwill
will no longer be amortized and intangible  assets with indefinite  useful lives
will not be amortized  until their useful lives are  determined  to be no longer
indefinite.  Goodwill  and  intangible  assets  that are not  amortized  will be
subject  to  at  least  an  annual  assessment  for  impairment  by  applying  a
fair-value-based test. As of July 30, 2002, the Company's impairment testing was
completed  and the  testing  concluded  that  there were no  impairment  issues.
Estimated  fair value was  determined  for each  reporting unit by utilizing the

                                       7
<PAGE>


expected  present value of the future cash flows of the units. In all instances,
the estimated fair value of the reporting units exceeded their book values.  The
Company  will  perform  impairment  testing on an annual  basis and may test for
impairment on a more frequent basis if management  believes events have occurred
or circumstances  have changed  resulting in a reporting unit's fair value being
reduced below its book value.

The following table provides summarized financial  information for the three and
nine month periods ended September 30, 2002 and 2001, with the 2001  information
presented  on an  adjusted  basis to reflect  the  elimination  of  amortization
expense  required  under SFAS 142 and the impact of  retroactively  applying the
change in method of accounting for customer  acquisition  costs at American Home
Shield.

<TABLE>

                                                                                   Three Months Ended          Nine Months Ended
                                                                                     September 30,               September 30,
   (IN THOUSANDS, EXCEPT PER SHARE DATA)                                           2002          2001        2002          2001
                                                                                ------------- --------     ---------   -------------

    OPERATING INCOME AND MARGINS:
----------------------------------------
<S>                                                                             <C>          <C>           <C>          <C>
Reported operating income ....................................................  $ 108,752    $  88,594     $ 283,672    $ 255,177
Add back: Goodwill and trade name amortization ...............................        -         15,366           -         45,660
Subtract:  Impact of retroactively applying the change in method of
   accounting for customer acquisition costs at AHS ..........................        -         (1,152)          -         (8,922)
                                                                                ---------    ---------     ---------    ---------


Operating income as adjusted under SFAS 142 and for
   retroactive application of accounting change ..............................  $ 108,752    $ 102,808     $ 283,672    $ 291,915
                                                                                =========    =========     =========    =========
        MARGIN PERCENTAGE (1) ................................................       10.7%        10.5%         10.2%        10.7%

   (1) The 2001 margin percentages are based on adjusted operating income amounts which are non-GAAP financial measures

   NET INCOME:

Reported net income from continuing operations before
   extraordinary gain (loss) and cumulative
   effect of accounting change ...............................................  $  57,810    $  35,730     $ 142,345    $  97,755
Add back: Goodwill and trade name amortization, net of tax ...................        -         10,400           -         31,000
Subtract:  Impact of retroactively applying the change in method of
  accounting for customer acquisition costs at AHS, net of tax ...............        -           (750)          -         (5,800)
                                                                                ---------    ---------     ---------    ---------

Net income from continuing operations before
   extraordinary gain (loss) and cumulative effect
   of accounting change as adjusted under SFAS 142 and
   for retroactive application of accounting change ..........................  $  57,810    $  45,380     $ 142,345    $ 122,955
                                                                                =========    =========     =========    =========

   DILUTED EARNINGS PER SHARE:

    Reported earnings per share from continuing operations before
       extraordinary gain (loss) and cumulative
       effect of accounting change ...........................................  $    0.19    $    0.12     $    0.46    $    0.33
    Add back: Goodwill and trade name amortization, net of tax ...............        -           0.04           -           0.10
   Subtract:  Impact of retroactively applying the change in method of
      accounting for customer acquisition costs at AHS, net of tax ...........        -            -             -          (0.02)

                                                                                ---------    ---------     ---------    ---------
    Earnings per share from continuing operations before
       extraordinary gain (loss) and cumulative effect
       of accounting change as adjusted under SFAS 142 and
       for retroactive application of accounting change ......................  $    0.19    $    0.16     $    0.46    $    0.41
                                                                                =========    =========     =========    =========
</TABLE>


                                       8
<PAGE>






The following table summarizes goodwill and intangible assets.

                                     As of                 As of
(IN THOUSANDS)                September 30, 2002     December 31, 2001
                                -------------           ------------

Covenants not to compete .....        69,404            $    67,667
Accumulated amortization (1) .       (52,882)               (47,640)
                                 -----------            -----------
  Net covenants not to compete        16,522                 20,027

Other intangibles ............         8,071                  6,639
Accumulated amortization (1) .        (1,906)                  (427)
                                 -----------            -----------
  Net other intangibles ......         6,165                  6,212

Trade names (2) ..............       238,550                238,550

Goodwill (2), (3) ............     1,913,222              1,902,934
                                 -----------            -----------

Total ........................   $ 2,174,459            $ 2,167,723
                                 ===========            ===========

(1)  Annual  amortization  expense of approximately $8 - $10 million is expected
     for the next five years.
(2)  Not subject to amortization.
(3)  For the nine months ended September 30, 2002 approximately $11.1 million of
     additional goodwill was recorded.

NOTE 6: On October 3, 2001 the Company's Board of Directors approved a series of
strategic  actions which were the culmination of an extensive  portfolio  review
process  that was  initiated  in the  first  quarter  of  2001.  The goal of the
portfolio  review was to  increase  shareholder  value by creating a focused and
aligned  company that  provides the greatest  return and growth  potential.  The
Company  determined  it could  best  achieve  these  goals with a  portfolio  of
businesses which support the business  strategy to become America's Home Service
Company and have  attractive  cash flow and return  characteristics.  As part of
this  determination,  in the  fourth  quarter  of  2001,  the  Company  sold its
Management  Services  business to ARAMARK  Corporation  for  approximately  $800
million.  Also in the fourth quarter of 2001,  the Company's  Board of Directors
approved the exit of non-strategic  and  under-performing  businesses  including
TruGreen LandCare Construction,  Certified Systems Inc. (CSI), and certain other
small operations. The Company sold its TruGreen LandCare Construction operations
to Environmental  Industries,  Inc. (EII) in certain markets and entered into an
agreement   with  EII  to  manage  the  wind-down  of   commercial   landscaping
construction  contracts in the remaining markets. In addition,  the Company sold
all of its  customer  contracts  relating  to the  exit  of CSI  (the  Company's
professional  employer  organization),  to AMS Staff  Leasing,  N.A.,  Inc.  The
Company  also  completed,  in the fourth  quarter  of 2001,  the sale of certain
subsidiaries of its European pest control and property services operations.  The
results of these discontinued  business units have been separated and classified
as "Discontinued  Operations" in the accompanying  financial statements.  During
the third  quarter of 2002,  the Company  sold its  Terminix  operations  in the
United Kingdom and the financial results have been reclassified from "Continuing
Operations" to "Discontinued Operations" for all periods presented.

In the fourth quarter of 2001, the Company  entered into a three-year  licensing
arrangement with ARAMARK for use of the ServiceMaster  trade name, valued at $15
million.  The Company  intended  to  recognize  this amount over the  three-year
contractual  period, and as such,  recognized $2 million related thereto in each
of the first and second quarters of 2002.  Subsequently,  the Company determined
that it was appropriate to recognize the entire $15 million licensing fee in the
fourth  quarter of 2001.  The  accompanying  December 31, 2001 balance sheet has
been adjusted to eliminate the $15 million in deferred  revenue  related to this
arrangement.  In addition, the accompanying nine-month financial statements have
been adjusted to eliminate the $4 million.

As discussed above,  the 2001 financial  statements will be restated for the $15
million  license  fee  and  the  2001  and  2000  financial  statements  will be
reclassified for the effects of the operations discontinued in the third quarter
of 2002.  Because  the prior  auditor,  Arthur  Andersen,  is unable to  reissue
reports on these  years,  the Company has engaged  Deloitte & Touche to re-audit
the 2001 and 2000 financial statements.


                                       9
<PAGE>


The December 31, 2001 Form 10-K and the 2002 first and second quarter Form 10-Qs
will be amended once the re-audit of the 2001 financial statements and the audit
of the 2002 financial statements are completed.

It is  important  to note that in the  October  29,  2002  press  release of the
Company's financial results,  the Company recognized a $4 million expense in the
third quarter results to reverse the impact of the license fees in the first and
second  quarters.  Because of the  Company's  intention to restate the first and
second quarters,  third quarter earnings as reflected  herein, no longer include
the $4 million reversal.

NOTE  7:  The  Company  continues  to  carry  certain  assets  on its  financial
statements relating to discontinued  operations.  Management is actively selling
remaining equipment and collecting outstanding receivables. The Company believes
that the  remaining  assets are  presented  at their net  realizable  value.  In
addition,  reserves  and accrual  balances  remain on the  financial  statements
relating to these  operations.  Cash  payments  incurred  for the  wind-down  of
LandCare construction  contracts,  lease termination costs, workers compensation
and health  claims as well as  professional  service  fees have been made in the
first nine months of the year.

As part of the overall strategic review, the Company recorded a charge for asset
impairments  and  other  items in the  fourth  quarter  of 2001  which  included
accruals for residual  value  guarantees  on leased  properties,  severance  for
former  executives and terminated  employees,  and other costs.  At December 31,
2001,  the accrual  balance was $36 million.  During the second quarter of 2002,
the Company completed the sale of its ownership interest in five assisted living
facilities.   These   properties   were  financed   through  a  synthetic  lease
arrangement,   whereby,  the  Company  guaranteed  the  residual  value  of  the
properties.  At year-end,  a $13.5 million reserve was established  representing
the amount by which the residual value guarantees  exceeded the value of bids to
purchase the  facilities at that time.  The final sales price was  significantly
greater than these bid levels and the Company realized a gain of $3.6 million in
the second quarter of 2002 from the sale on the assisted living properties.

The following  table below  summarizes the activity during the nine months ended
September 30, 2002 for the remaining liabilities from the discontinued operation
and the reserves for items  recorded in the fourth  quarter of 2001. The Company
believes that the remaining reserves continue to be adequate and reasonable.

<TABLE>

(IN THOUSANDS)                     Balance at          Cash                            Balance at
                                  December 31,       Payments          Income/        September 30,
                                      2001           or Other         (Expense)           2002
                                 ---------------    -----------       ----------      --------------
<S>                                     <C>            <C>             <C>                  <C>
Remaining liabilities from
  discontinued operations
     LandCare Construction              $33,700        $21,000         $(1,200)             $13,900
     Certified Systems, Inc.             23,800          7,500          (3,500)              19,800
     Management Services                 11,400          2,200            4,700               4,500
     International businesses            18,600         18,600 (1)      (12,900)             12,900
     Other                                6,300          6,300                -                  -
Reserves related to strategic
  actions in the fourth
  quarter of 2001                       $36,000        $13,700           $3,600             $18,700

</TABLE>


(1)  The  liabilities  of this  business  were  assumed by the buyer of the sold
     operations. No cash payments were required.

The  Company  recorded  a $3.2  million  charge in the  second  quarter  of 2002
relating to the severance and  termination  agreement of a key  executive.  This
severance will be paid out over three years.


NOTE 8: Basic  earnings per share are computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The weighted  average common shares for the diluted  earnings per share
calculation includes the incremental effect related to outstanding options whose
market price is in excess of the exercise  price.  Shares  potentially  issuable
under  convertible  securities have been considered  outstanding for purposes of

                                       10
<PAGE>



the diluted earnings per share  calculations.  In computing diluted earnings per
share, the after-tax interest expense related to convertible debentures is added
back to net income in the numerator, while the diluted shares in the denominator
include the shares issuable upon conversion of the debentures.


The following  chart  reconciles  both the numerator and the  denominator of the
basic earnings per share computation to the numerator and the denominator of the
diluted earnings per share computation.


<TABLE>


(IN THOUSANDS, EXCEPT PER SHARE DATA)                         Three Months                          Three Months
                                                        Ended September 30, 2002              Ended September 30, 2001
                                                    --------------------------------       ------------------------------

                                                      INCOME       SHARES      EPS           INCOME      SHARES      EPS
                                                     --------     --------   ------         --------    --------    -----
<S>                                                    <C>         <C>        <C>            <C>         <C>        <C>
 Basic earnings per share                              $58,337     301,093    $0.19          $46,123     298,925    $0.15
                                                                              =====                                 =====
 Effect of dilutive securities, net of tax:
    Options                                                          4,356                                 5,399
    Convertible securities                               1,195       8,200                     1,195       8,200
                                                     ----------   ---------                 ----------  ---------


 Diluted earnings per share                            $59,532     313,649    $0.19          $47,318     312,524    $0.15
                                                     ==========   =========  ========       ==========  =========  =======

</TABLE>
<TABLE>


                                                               Nine Months                           Nine Months
                                                         Ended September 30, 2002              Ended September 30, 2001
                                                     --------------------------------       ------------------------------

                                                      INCOME       SHARES      EPS           INCOME      SHARES      EPS
                                                     --------     --------   ------         --------    --------    -----
<S>                                                    <C>         <C>        <C>            <C>         <C>        <C>
 Basic earnings per share                              $89,223     300,805    $0.30          $126,063     298,425    $0.42
                                                                              =====                                 ======
 Effect of dilutive securities, net of tax:
    Options                                                          6,150                                  4,419
    Convertible securities                               3,585       8,200                      3,579       8,200
                                                     ----------   ---------                 ----------  ---------


 Diluted earnings per share                            $92,808     315,155    $0.29          $129,642     311,044    $0.42
                                                     ==========   =========  ========       ==========  =========   ======

</TABLE>

NOTE 9: In the Consolidated  Statements of Cash Flows, the caption Cash and Cash
Equivalents includes investments in short-term,  highly-liquid securities having
a maturity of three  months or less.  Supplemental  information  relating to the
Consolidated  Statements  of Cash Flows for the nine months ended  September 30,
2002 and 2001 is presented in the following table:

                                               (IN THOUSANDS)
                                              2002         2001
CASH PAID OR (RECEIVED) FOR:              ----------  -----------
Interest expense.......................  $   68,369  $  106,645
Interest and dividend income...........  $   (8,195) $   (6,659)
Income taxes...........................  $   36,629  $   (7,277)

The decrease in interest  paid in 2002 is  primarily  due to reduced debt levels
reflecting debt  retirements  utilizing the proceeds from the sale of Management
Services.  The increase in interest  income received is also due to the proceeds
received from the Management Services sale as the Company maintained significant
cash levels  throughout the year. The tax payment in 2002 resulted from the gain
on the sale of the Management Services business which compared to the prior year
tax refund of $21 million related to prior year over-payments.

NOTE 10: Total comprehensive  income was $60.7 million and $41.1 million for the
three months ended September 30, 2002 and 2001, respectively,  and $85.6 million
and $109.8  million  for the nine  months  ended  September  30,  2002 and 2001,
respectively.  Comprehensive income for the nine months ended September 30, 2002
includes  the  cumulative  adjustment  of $45  million  related to the change in
accounting method for customer  acquisition costs at American Home Shield. Total
comprehensive income includes primarily net income,  changes in unrealized gains
and losses on marketable securities and translation balances.

NOTE 11: On March 23, 2001, the Company entered into an agreement which provides
for the ongoing  revolving sale of a designated  pool of accounts  receivable of
TruGreen  and  Terminix.  At  September  30,  2002,  there  were no  outstanding
receivables sold to third parties under this agreement. However, the Company may
sell its  receivables in the future which would provide an  alternative  funding
source.


                                       11
<PAGE>


NOTE 12: In the second  quarter of 2002, the Company  recorded an  extraordinary
loss on early debt  extinguishment of $9.2 million after-tax or $.03 per diluted
share   resulting  from  the  repurchase  of   approximately   $218  million  in
ServiceMaster  corporate  bonds pursuant to a tender offer. In the first quarter
of 2001, the Company  repurchased  approximately  $35 million of its public debt
securities and recorded an extraordinary  gain of $6.0 million after-tax or $.02
per diluted share.

In  April  2002,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial   Accounting  Standard  No.  145,  "Recission  of  FASB
Statements No. 4, 44 and 64,  Amendment of FASB Statement  No.13,  and Technical
Corrections"  (SFAS 145). The primary impact to the Company of this Statement is
that it rescinds  Statement No. 4 which  required all material  gains and losses
from  extinguishment  of debt to be classified as extraordinary  items. SFAS 145
requires that the more  restrictive  criteria of APB Opinion No. 30 will be used
to determine whether such gains or losses are extraordinary. The Company intends
to adopt this  Statement in its fiscal year 2003, as required by the  Statement.
Adoption  of  this  Statement  will  result  in  the   reclassification  of  the
extraordinary gain (loss) included in the accompanying  Consolidated  Statements
of Income.

In June 2002,  the FASB issued  Statement of Financial  Accounting  Standard No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities".  This
Statement requires  recording costs associated with exit or disposal  activities
at their  fair  values  when a  liability  has  been  incurred.  Under  previous
guidance,  certain exit costs were accrued upon  management's  commitment  to an
exit plan, which is generally before an actual liability has been incurred.  The
provisions of this statement are effective for exit or disposal  activities that
are initiated after December 31, 2002.

NOTE 13: The Company  continues to maintain  minority  investors in the combined
ARS/AMS entity as well as in Terminix.  Members of management acquired,  at fair
market value, equity interests in ARS. The Company and the equity investors have
respective  options to acquire or sell the minority interests in the future at a
price based on fair market value.  The Company is in the process of repurchasing
the shares of ARS that were previously  purchased by members of management.  The
Company  expects to  repurchase  such shares at fair market value at the time of
repurchase.  At Terminix,  the minority ownership reflects an interest issued to
the prior owners of the Allied Bruce Terminix  Companies in connection with that
acquisition.   This  equity   security  is   exchangeable   into  eight  million
ServiceMaster common shares. The ServiceMaster shares are included in the shares
used for the calculation of diluted earnings per share.

In January  2001,  Jonathan P. Ward,  President and Chief  Executive  Officer of
ServiceMaster,  purchased  from the Company a 5.50%  convertible  debenture  due
January 9, 2011, with a face value of $1.1 million.  The Company loaned Mr. Ward
the entire  amount of the purchase  price through a 5.50% full recourse loan due
January 9, 2011.  In May 2001,  Mr. Ward  purchased a second  5.50%  convertible
debenture  due May 10,  2011,  with a face value of $1.1  million.  The  Company
loaned 50% of the  purchase  price of this  second  debenture  with a 5.50% full
recourse note due May 10, 2011. Each debenture  becomes  convertible into 20,000
shares of  ServiceMaster  common  stock on December 31 on each of the years 2001
through 2005.

NOTE 14: The  business  of the  Company is  primarily  conducted  through  three
operating segments: TruGreen, Terminix, and Home Maintenance and Improvement. In
accordance with Statement of Financial  Accounting Standards No. 131 (SFAS 131),
the  Company's  reportable  segments  are  strategic  business  units that offer
different  services.  The TruGreen segment  provides  residential and commercial
lawn care and landscaping  services  through the TruGreen  ChemLawn and TruGreen
LandCare companies. As a result of the decision in the fourth quarter of 2001 to
exit  the  LandCare  Construction  business,  the  results  of the  construction
operations  are now included in  discontinued  operations  for all periods.  The
Terminix  segment  provides termite and pest control services to residential and
commercial U.S. customers. The Home Maintenance and Improvement segment includes
American Residential Services, (ARS) and American Mechanical Services (AMS) that
provide heating,  ventilation,  air conditioning (HVAC) and plumbing services as
well as American Home Shield which  provides home  warranties to consumers  that
cover HVAC,  plumbing and other  appliances.  The segment also  includes the two
franchise  operations,  ServiceMaster  Clean  and  Merry  Maids,  which  provide
disaster restoration and cleaning services.


                                       12
<PAGE>


The Other  Operations  segment  consists  primarily of overhead  functions  that
support the operations of the enterprise.  This segment  includes  ServiceMaster
Home Service Center, an initiative that has developed valuable  competencies and
has built an infrastructure that allows customers the ability to purchase all of
the  Company's  services  through a single point of contact;  and the  Company's
headquarters  operations which provides various technology,  marketing,  finance
and other support services to the business units.

Segment  information  as of and for the  three  months  and  nine  months  ended
September 30, 2002 and 2001 is presented below. The table below also presents an
"Adjusted" column of 2001 information which includes two adjustments made to the
reported amounts:

(1)  SFAS  142,   "Goodwill  and  Other  Intangible   Assets",   eliminates  the
     amortization  of  goodwill  and  intangible  assets with  indefinite  lives
     beginning in 2002. The 2001 operating income  information has been adjusted
     to eliminate amortization expense related to goodwill and intangible assets
     with indefinite lives.

(2)  The  change in method  of  accounting  for  deferred  acquisition  costs at
     American  Home Shield has been  reflected as a cumulative  adjustment as of
     January  1,  2002.  The  2001  operating  income,   capital  employed,  and
     identifiable asset information has been adjusted to reflect the retroactive
     application of the change in method of accounting.

<TABLE>


(IN THOUSANDS)                                         Three Months        Three Months        Three Months
                                                     Ended Sept. 30,     Ended Sept. 30,      Ended Sept. 30,
                                                           2002                2001                2001
                                                         Reported            Reported            Adjusted
--------------------------------------------------- ------------------- ------------------- --------------------
<S>                                                          <C>                  <C>                    <C>
Operating Revenue:
  TruGreen                                                    $418,715            $414,279
  Terminix                                                     239,053             213,611
  Home Maintenance and Improvement                             345,900             350,238
  Other Operations                                               9,816               3,424
--------------------------------------------------- ------------------- -------------------
Total Operating Revenue                                     $1,013,484            $981,552
=================================================== =================== ===================


Operating Income:
  TruGreen                                                     $60,752             $51,732              $58,331
  Terminix                                                      28,826              21,413               26,373
  Home Maintenance and Improvement                              33,838              30,411               33,066
  Other Operations                                            (14,664)            (14,962)             (14,962)
--------------------------------------------------- ------------------- ------------------- --------------------
Total Operating Income                                        $108,752             $88,594             $102,808
=================================================== =================== =================== ====================


Capital Employed:
  CAPITAL EMPLOYED REPRESENTS THE NET ASSETS OF THE SEGMENT; I.E., TOTAL ASSETS LESS LIABILITIES
    (LIABILITIES DO NOT INCLUDE DEBT BALANCES)
  TruGreen                                                  $1,070,834          $1,090,514           $1,090,514
  Terminix                                                     621,568             578,793              578,793
  Home Maintenance and Improvement                             630,337             668,048              626,546
  Other Operations (and discontinued businesses)             (161,047)             569,980              569,980
---------------------------------------------------------- ------------ ------------------- --------------------
Total Capital Employed                                      $2,161,692          $2,907,335           $2,865,833
=================================================== =================== =================== ====================

Identifiable Assets:
  TruGreen                                                  $1,117,188          $1,161,875           $1,161,875
  Terminix                                                     859,819             781,869              781,869
  Home Maintenance and Improvement                           1,006,280           1,041,620            1,000,118
  Other Operations (and discontinued businesses)               434,502           1,033,056            1,033,056
--------------------------------------------------- ------------------- ------------------- --------------------
Total Identifiable Assets                                   $3,417,789          $4,018,420           $3,976,918
=================================================== =================== =================== ====================

</TABLE>




                                       13
<PAGE>



<TABLE>

                                                       Nine Months         Nine Months          Nine Months
                                                     Ended Sept. 30,     Ended Sept. 30,      Ended Sept. 30,
                                                           2002                2001                2001
                                                         Reported            Reported            Adjusted
--------------------------------------------------- ------------------- ------------------- --------------------
<S>                                                         <C>                 <C>
Operating Revenue:
  TruGreen                                                  $1,082,137          $1,074,099
  Terminix                                                     714,502             638,575
  Home Maintenance and Improvement                             966,415             994,471
  Other Operations                                              16,622               9,685
--------------------------------------------------- ------------------- -------------------
Total Operating Revenue                                     $2,779,676          $2,716,830
=================================================== =================== ===================

Operating Income:
  TruGreen                                                    $138,513            $125,588             $145,377
  Terminix                                                     110,448              81,939               96,717
  Home Maintenance and Improvement                              78,719              83,348               85,519
  Other Operations                                            (44,008)            (35,698)             (35,698)
--------------------------------------------------- ------------------- ------------------- --------------------
Total Operating Income                                        $283,672            $255,177             $291,915
=================================================== =================== =================== ====================

</TABLE>



The following table summarizes by segment goodwill and trade names that are not
subject to amortization.

                                        September 30,         December 31,
                                            2002                  2001
                                      ------------------    ------------------
TruGreen                                       $916,178              $912,808
Terminix                                        708,408               703,266
Home Maintenance and Improvement                507,186               505,410
Other Operations                                 20,000                20,000
                                      ------------------    ------------------
Total                                        $2,151,772            $2,141,484
                                      ==================    ==================






                                       14
<PAGE>





     MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS


RESULTS OF OPERATIONS

THIRD QUARTER 2002 COMPARED TO THIRD QUARTER 2001
----------------------------------------------------
CONSOLIDATED REVIEW

Revenue for the third  quarter  totaled $1.01  billion,  three percent above the
prior year. Reported operating income was $109 million in 2002 compared with $89
million  in 2001  and  reported  diluted  earnings  per  share  from  continuing
operations  was $.19 in 2002 compared with $.12 in 2001. On a comparable  basis,
earnings  per share was $.01 above the prior year.  In order to compare the 2001
figures on a comparable basis, adjustments to reflect accounting changes and the
effect of debt repayments need to be made.

In order to assist in the  comparison  of  earnings  per share,  the table below
presents diluted earnings per share on a comparable  basis,  assuming:  (i) only
continuing operations existed, (ii) SFAS 142 was effective,  (iii) the change in
method of accounting for customer  acquisition costs at American Home Shield was
applied  retroactively,  and (iv)  after-tax  proceeds  from  the 2001  sales of
Management  Services and certain  European pest control  operations were used to
repay debt prior to 2001.  These  adjustments  in the  aggregate  provide a less
favorable comparison to the prior year than the reported results,  however, they
allow for the review of the underlying base business performance on a comparable
basis.
<TABLE>

                                                         Three months ended        Nine months ended
                                                           September 30,             September 30,
                                                          2002         2001       2002          2001
                                                        ---------     -------    --------    -----------
<S>                                                        <C>         <C>        <C>          <C>
Continuing operations before extraordinary items           $0.19       $0.12      $0.46        $0.33

Earnings per share equivalent of reduced
amortization expense under new accounting rules                -        0.04        -           0.10

Interest expense reduction                                     -        0.02        -           0.06

Retroactive application of accounting change                   -         -          -          (0.02)
                                                        ---------     -------    --------    -----------
As adjusted earnings per share                             $0.19       $0.18      $0.46        $0.47
                                                        =========     =======    ========    ===========
</TABLE>


For comparative purposes,  the Company has provided supplemental  information in
Note 5 which  presents  certain  2001  information  as  adjusted  to reflect the
elimination  of  goodwill  and  trade  name   amortization  and  the  impact  of
retroactively  applying the change in method of  accounting  for  American  Home
Shield customer  acquisition costs.  Statement of Financial Accounting Standards
No. 142,  "Goodwill  and Other  Intangible  Assets"  (SFAS 142),  requires  that
goodwill  and trade names no longer be  amortized.  SFAS 142 does not permit the
restatement  of  2001  financial  information  to  reflect  the  impact  of this
Statement.  In the second  quarter of 2002,  the Company  changed its accounting
method for customer  acquisition costs in its American Home Shield business.  In
accordance  with  Accounting   Principles  Board  Opinion  No.  20,  "Accounting
Changes",  prior period financial  statements are not restated for the impact of
the new accounting method.  This new policy is expected to result in a reduction
of $.03 per share in reported  earnings in 2002, but will have no impact on cash
flow in the current or future years.

Third quarter operating income on this comparable basis increased six percent to
$109  million from $103  million,  with  operating  margins  increasing  to 10.7
percent from 10.5 percent.  The increase in operating income reflects  continued
strong performance at American Home Shield and Terminix,  solid performance from
the TruGreen lawn care  operations  and $6 million of licensing fees received in
the sale of the Terminix  United Kingdom  operations.  The increase in operating
income is partially  offset by  continuing  challenges  in the HVAC and plumbing
businesses  of ARS and  AMS,  as  well  as  increased  expenditures  related  to
Company-wide operational initiatives and overhead support.

Cost of  services  rendered  and  products  sold  increased  two percent for the
quarter and  decreased as a  percentage  of revenue to 68.1 percent in 2002 from
68.8 percent in 2001. Selling and

                                       15
<PAGE>



administrative  expenses  increased six percent and increased as a percentage of
revenue  to 20.9  percent  from 20.3  percent  in 2001  (20.5  percent  in 2001,
retroactively  applying  the prior  year  impact  of the  American  Home  Shield
accounting change). The increase in selling and administrative expenses reflects
strong growth in  operations  that have higher gross margin levels than the rest
of the  business,  but also incur  somewhat  higher  selling and  administrative
expenses as a percentage of revenue,  as well as enterprise-wide  investments to
measure and improve customer and employee satisfaction.

Interest  expense  decreased from the prior year,  primarily due to reduced debt
levels  as a portion  of the  proceeds  received  from  sales of the  Management
Services  and certain  European  pest control  businesses  were used to pay down
debt.  Interest and investment  income decreased  primarily  reflecting one time
venture  capital  gains  realized  in the  prior  year  and a  reduced  level of
investment gains realized on the American Home Shield investment  portfolio.  As
of September 30, 2002, there is an unrealized loss of approximately  $10 million
on the American Home Shield  investment  portfolio  which has been  reflected in
other  comprehensive  income.  Minority  interest  and other  expense  decreased
primarily  due to prior year  losses  incurred  relating to the sale of accounts
receivables under the Company's securitization program.

The tax provision in 2002 reflects an effective  tax rate  (approximately  37%),
which is lower  than 2001 as it  includes  the  benefits  received  through  the
consolidation  for tax purposes of the  ServiceMaster  Home Service Center. As a
result of the Company's  acquisition  of the minority  interest,  it was able to
reorganize the subsidiary in 2002 and utilize prior year net operating losses of
this subsidiary operation.

OUTLOOK

In light of economic  conditions and the  persistent  challenges in the HVAC and
plumbing  businesses,  the Company is lowering its previously stated guidance to
be in the  range of $.55 to $.57 per share for 2002.  However,  the  Company  is
confident the fourth quarter will show its first year over year growth since the
second quarter of 2000.  The Company  expects to provide  earnings  guidance for
2003 when it reports its 2002  financial  results.  The  Company  expects mid to
high-single digit growth rates in 2003 driven primarily by new sales,  increased
retention and a resumption of tuck-in acquisitions.

OTHER DEVELOPMENTS

In the fourth quarter of 2001, the Company  entered into a three-year  licensing
arrangement with ARAMARK for use of the ServiceMaster  trade name, valued at $15
million.  The Company  intended  to  recognize  this amount over the  three-year
contractual  period, and as such,  recognized $2 million related thereto in each
of the first and second quarters of 2002.  Subsequently,  the Company determined
that it was appropriate to recognize the entire $15 million licensing fee in the
fourth  quarter of 2001.  The  accompanying  December 31, 2001 balance sheet has
been adjusted to eliminate the $15 million in deferred  revenue  related to this
arrangement.  In addition, the accompanying nine-month financial statements have
been adjusted to eliminate the $4 million.

As discussed above,  the 2001 financial  statements will be restated for the $15
million  license  fee  and  the  2001  and  2000  financial  statements  will be
reclassified for the effects of the discontinued operations in the third quarter
of 2002.  Because  the prior  auditors,  Arthur  Andersen,  is unable to reissue
reports on these  years,  the Company has engaged  Deloitte & Touche to re-audit
the 2001 and 2000 financial statements.

The December 31, 2001 Form 10-K and the 2002 first and second quarter Form 10-Qs
will be amended once the re-audit of the 2001 financial statements and the audit
of the 2002 financial statements are completed.

It is  important  to note that in the  October  29,  2002  press  release of the
Company's financial results,  the Company recognized a $4 million expense in the
third quarter results to reverse the impact of the license fees in the first and
second  quarters.  Because of the  Company's  intention to restate the


                                       16
<PAGE>

first and second quarters, third quarter earnings as reflected herein, no longer
include the $4 million reversal.

SEGMENT REVIEW

NOTE: 2002 RESULTS OF THE SEGMENTS REFLECT THE ELIMINATION OF GOODWILL AND TRADE
NAME  AMORTIZATION  REQUIRED UNDER SFAS NO. 142 AND THE CHANGE IN ACCOUNTING FOR
AMERICAN HOME SHIELD.  THEREFORE,  FOR COMPARATIVE  PURPOSES,  2001 RESULTS HAVE
BEEN RESTATED TO REFLECT COMPARABLE ACCOUNTING POLICIES.

The TruGreen segment includes lawn care operations  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  This  segment's  results for both 2002 and 2001
exclude the discontinued TruGreen LandCare Construction  business.  The TruGreen
segment  reported  revenue of $419  million,  one percent  above the prior year.
Operating  income  increased  four  percent to $61 million from $58 million last
year,  reflecting solid improvement in the lawn care operations.  Revenue in the
lawn care business  improved two percent over the prior year,  reflecting growth
in customer  counts from increased  sales and improved  retention  rates.  Solid
growth in the sale of ancillary  services  was  supported by the higher level of
full program  customers.  Margins in the lawn care  operations  increased as the
business is beginning to see margin leverage  resulting from top-line growth and
the success of its quality of service and Six Sigma initiatives. Revenues in the
landscape  maintenance  operations  declined  one  percent  reflecting  a volume
decrease in the core maintenance business, offset in part by solid growth in the
utility  line  clearing  business.  Despite  the  volume  decline,  the  base of
maintenance  business  consists  of  more  profitable  contracts  with  stronger
customers and improved pricing.  Margins in the landscaping  operations declined
primarily  reflecting  lower  labor  and  material  costs  offset  by  increased
insurance costs and investments to support sales and retention initiatives. This
business has hired a senior sales leader and is  expanding  and  developing  its
sales force.  In  addition,  management  continues to focus on labor  efficiency
programs  and  improving  the results of the bottom  quartile  of its  branches.
Capital  employed  decreased two percent,  reflecting  improved  working capital
management in both the lawn care and landscape  operations,  partially offset by
the securitization of receivables in the prior year.

The Terminix  segment,  which  includes  the  domestic  termite and pest control
services,  reported a 12 percent  increase in revenue to $239  million from $214
million in 2001 and operating  income growth of nine percent to $29 million from
$26  million  last  year.  Revenue  growth  reflects  the  impact  of  the  2001
acquisition  of Sears  Termite & Pest  Control as well as new sales and improved
customer  retention  in both the termite and pest  control  business.  Operating
margins  declined  reflecting  initial  investments  in a  new  information  and
operating system, increased direct marketing expenditures and investments in Six
Sigma,  offset  in  part by the  prior  year  acquisition  and  improved  branch
efficiencies  for labor and material  costs.  Capital  employed  increased seven
percent primarily reflecting acquisitions.

The Home Maintenance and Improvement segment includes heating,  ventilation, air
conditioning   (HVAC),   and  plumbing  services  provided  under  the  American
Residential  Services (ARS),  Rescue Rooter,  and American  Mechanical  Services
(AMS) (for commercial accounts) brand names; home systems and appliance warranty
contracts  offered  through  American  Home Shield;  and the  Company's  primary
franchised operations, ServiceMaster Clean and Merry Maids. The segment reported
revenue of $346 million,  a decrease of one percent from $350 million last year.
Operating  income  increased two percent to $34 million  compared to $33 million
last year.  Performance  in the segment  was  supported  by strong  double-digit
revenue and profit  growth at American Home Shield offset by a decline in volume
of air  conditioning  and  plumbing  services  in the ARS  and  AMS  businesses.
American Home Shield  reported  strong growth in the real estate sales  channel,
significant  growth in direct sales to consumers  and continued  improvement  in
customer   retention.   Margins  improved   significantly   reflecting   various
initiatives  to improve our cost  structure  and modest  weather  conditions  in
several regions which resulted in a reduced level of claims. In the combined ARS
and AMS operations,  a decline in call volume for air  conditioning and plumbing
repairs and reduced  construction  activity continued to affect the industry and
resulted in a double-digit decline in revenue and profit. ARS has hired a senior
operations leader and is realigning its field operating  structure to narrow the
span of  control  in  troubled  locations.  Management  is

                                       17
<PAGE>


developing specific turnaround plans for each location,  including improving the
quality and depth of management  through  internal and external  recruiting  and
creating a management  development  program.  ARS is  continuing  to rebuild its
marketing  and sales  strategies  by  centralizing  its  marketing  planning and
placement,  improving the lead and sales tracking system,  and reducing reliance
on yellow pages advertising.  The combined franchise  operations  reported a one
percent  increase  in revenue and solid  profit  growth,  primarily  driven by a
strong  growth  in  disaster   restoration  and  increased  franchise  sales  at
ServiceMaster Clean and growth from branch acquisitions in Merry Maids.  Capital
employed  decreased six percent reflecting the change in accounting for American
Home Shield deferred  customer  acquisition  costs and improved  working capital
management.  Adjusting for the change in accounting,  capital employed increased
one percent.

Other Operations  includes  ServiceMaster  Home Service Center and the Company's
headquarters  operations.  Revenue for the quarter increased to $10 million from
$3 million in the prior  year,  primarily  due to $6 million in  licensing  fees
received in the sale of the Terminix  United  Kingdom  operations.  This segment
shows a net  operating  expense,  which  decreased  slightly from the prior year
reflecting higher provisions for workers compensation claims and investments for
initiatives  at the  enterprise  level,  offset by the $6  million  of  Terminix
licensing  fees.  Capital  employed in this segment  includes  the  discontinued
operations  and  therefore  is  significantly   reduced  from  the  prior  year,
reflecting the prior year divestitures of businesses.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED TO SEPTEMBER 30, 2001

CONSOLIDATED REVIEW

Revenue for the nine months  increased  two  percent to $2.8  billion.  Reported
operating  income was $284 million in 2002  compared  with $255 million in 2001,
and reported diluted  earnings per share from continuing  operations was $.46 in
2002 compared  with $.33 in 2001.  The nine month results in 2002 include a $.14
charge related to the cumulative effect of the change in accounting method and a
$.03 extraordinary loss from early debt  extinguishment.  Including these items,
reported diluted earnings per share was $.29 for the nine months in 2002.

The Company has changed  significantly  since last year and in the third quarter
consolidated review section there is a table that presents the 2001 earnings per
share for the quarter and  nine-month  periods  adjusted to be comparable to the
2002 figures.  In order to assist in the  comparison of earnings per share,  the
table presents 2001 diluted earnings per share on a comparable basis,  assuming:
(i) only continuing operations existed,  (ii) SFAS 142 was effective,  (iii) the
change in method of accounting for customer  acquisition  costs at American Home
Shield was applied  retroactively,  and (iv)  after-tax  proceeds  from the 2001
sales of Management  Services and certain European pest control  operations were
used to repay debt prior to 2001. These adjustments in the aggregate provide for
a less  favorable  comparison  to the  prior  year  than the  reported  results,
however,  they allow for the review of the underlying base business  performance
on a  comparable  basis.  Diluted  earnings  per share for the nine  months on a
comparable basis was $.46 in 2002 compared to $.47 in 2001.

As presented in the supplemental information in Note 5, operating income on this
basis decreased three percent to $284 million in 2002 from $292 million in 2001,
with  margins  decreasing  to 10.2  percent  from 10.7  percent.  The decline in
operating  income reflects strong increases at Terminix and American Home Shield
offset by reduced  volume in the HVAC and plumbing  businesses of ARS and AMS, a
reduced  deferral of  seasonal  costs  compared  to the prior year at  TruGreen,
increased workers compensation claims at TruGreen LandCare, as well as increased
investments for Company-wide initiatives.

Cost of services  rendered and products sold  increased one percent for the nine
months and  decreased  as a  percentage  of revenue to 68.6 percent in 2002 from
69.4 percent in 2001. Selling and  administrative  expenses increased 11 percent
and  increased as a  percentage  of revenue to 20.9 percent from 19.3 percent in
2001 (19.6 percent in 2001,  retroactively applying the prior year


                                       18
<PAGE>

impact of the American Home Shield accounting  change).  The increase in selling
and  administrative  expenses  reflects  strong growth in  operations  that have
higher  gross  margin  levels  than the  rest of the  business,  but also  incur
somewhat higher selling and administrative  expenses as a percentage of revenue,
as well as  enterprise-wide  investments  to measure  and improve  customer  and
employee satisfaction.

Interest expense decreased from the prior year,  reflecting  reduced debt levels
resulting from the pay down of debt with the proceeds received from the sales of
the Management  Services and certain European pest control businesses as well as
strong  cash flows from  operations.  The  Company  realized a reduced  level of
investment  gains on the American  Home Shield  investment  portfolio  this year
which is in the  interest  and  investment  income line on the Income  Statement
along with prior year venture capital gains. Minority interest and other expense
increased from the prior year as 2001 included  minority interest income related
to the  ServiceMaster  Home Service Center  initiative.  In the first quarter of
2001 and until May 2001,  the  operating  losses of  ServiceMaster  Home Service
Center had been offset  through  minority  interest  income (below the operating
income line)  because of  investments  in the venture made by Kleiner,  Perkins,
Caufield & Byers. In December 2001, the Company  acquired the minority  interest
in the ServiceMaster Home Service Center held by Kleiner Perkins.

The tax provision in 2002 reflects a lower  effective tax rate based on benefits
received through the consolidation  for tax purposes of the  ServiceMaster  Home
Service  Center.  As a  result  of the  Company's  acquisition  of the  minority
interest,  it was able to  reorganize  the  subsidiary in 2002 and utilize prior
year net operating losses of this subsidiary operation.

KEY PERFORMANCE INDICATORS

The table  below  presents  selected  metrics  related  to  customer  counts and
customer  retention  for the three most  profitable  businesses  of the Company.
These measures are presented on a rolling,  twelve month basis in order to avoid
seasonal anomalies.

                                                   KEY PERFORMANCE INDICATORS
                                                       As of September 30,

                                                      2002           2001
                                                 -------------   -------------
TRUGREEN CHEMLAWN -
   Growth in Full Program Contracts                    2%            -4%
   Customer Retention Rate                          62.4%          60.1%

TERMINIX -
   Growth in Pest Control Customers                   11%            13%
   Pest Control Customer Retention Rate             76.7%          76.6%

   Growth in Termite Customers                         8%            19%
   Termite Customer Retention Rate                  89.5%          89.1%

AMERICAN HOME SHIELD -
   Growth in Warranty Contracts                       16%            15%
   Customer Retention Rate                          53.0%          52.1%

SEGMENT REVIEW

NOTE: 2002 RESULTS OF THE SEGMENTS REFLECT THE ELIMINATION OF GOODWILL AND TRADE
NAME  AMORTIZATION  REQUIRED UNDER SFAS NO. 142 AND THE CHANGE IN ACCOUNTING FOR
AMERICAN HOME SHIELD.  THEREFORE,  FOR COMPARATIVE  PURPOSES,  2001 RESULTS HAVE
BEEN RESTATED TO REFLECT COMPARABLE ACCOUNTING POLICIES.

The  TruGreen  segment  reported  revenue of $1.08  billion,  an increase of one
percent  over the prior year.  Operating  income  decreased to $139 million from
$145  million last year,  primarily  reflecting  an increased  level of seasonal
costs in the lawn care operations (approximately $5 million),  increased workers
compensation claims in the landscaping operations (approximately $5 million)

                                       19
<PAGE>


and a lower volume of snow removal business  (approximately  $2.5 million) early
in the year.  Revenue in the lawn care  business  increased two percent over the
prior year.  Customer contracts have increased two percent over the prior twelve
months compared with a four percent decline in the prior year period, reflecting
the  benefit  of new  marketing  strategies  as well as the  impact of  improved
customer retention.  In addition to telemarketing,  which is the primary channel
used by TruGreen  ChemLawn  to sell its  services,  the  business  has  expanded
investments in direct mail and television advertising leading to higher sales of
new  customers.  Quality and other  satisfaction  initiatives  have  resulted in
improving retention of existing customers.  The customer retention rate improved
230 basis points to 62.4 percent compared to the same period last year.  Margins
in the lawn care operations  declined,  reflecting  improved labor  productivity
offset by an increased  level of seasonal  costs.  Year-to-date  this year,  the
Company  has  expensed  more in  seasonal  costs than in the prior year due to a
higher  expectation  of  revenue  in the prior  year  that did not  materialize.
Revenue in the landscaping  business declined two percent  reflecting a decrease
in snow removal  services due to mild winter  weather and a decrease in the core
maintenance business.  Despite the decline in the maintenance business, the base
of contracts  is more  profitable  reflecting  stronger  customers  and improved
pricing.  Margins  in  the  landscaping  services  business  declined  primarily
reflecting  the  decreased  volume of higher  margin snow  removal  business and
increased workers compensation claims. In the fourth quarter,  sales of enhanced
services will be a priority along with the reduction of seasonal labor levels.

The Terminix  segment  reported a 12 percent increase in revenue to $715 million
from $639  million  in 2001 and  operating  income  growth of 14 percent to $110
million from $97 million last year. Revenue growth was driven by the acquisition
in 2001 of  Sears  Termite  & Pest  Control  as well as solid  internal  growth.
Terminix has continued to show  favorable  comparisons  in both termite and pest
control customer retention, reflecting increased focus on quality, training, and
customer service processes in the branches.  Operating margins improved over the
prior year reflecting the impact of the  acquisitions,  continuing  migration to
higher margin  products,  improved labor  efficiencies and lower material costs.
The  fourth  quarter  will be the  first  time  in  which  the  year  over  year
comparisons  include the Sears  acquisition  in both  years.  As expected by the
Company,  there has been a  substantial  decrease  in  profitable  pest  control
customers  in the Sears  markets,  as the  Company  has not been able to replace
terminations with new sales at the same rate in these markets.  As a result, the
Company expects to see a reduction in revenue growth in the fourth  quarter.  In
addition,  operating  margins  in the fourth  quarter  will be  impacted  by the
near-term  expenses  associated  with the  roll-out  of  Terminix's  new  branch
operating  system.  The roll-out of this new information  system to the branches
will  continue  through  2003,  and  the  system  will be an  important  tool to
supporting improved sales productivity,  customer satisfaction,  cost efficiency
and regulatory compliance.

The Home Maintenance and Improvement segment reported revenue of $966 million, a
decrease  of three  percent  from  $994  million  last  year.  Operating  income
decreased  eight  percent to $79  million  compared  to $86  million  last year.
American Home Shield reported  double-digit  growth in revenue and profit.  Both
sales and retention rates continued to show improvements over prior year levels.
Margins  improved  benefiting  from lower  service  costs and a decrease  in the
incidence of claims.  The combined ARS and AMS operations  reported a 12 percent
decrease in revenue and profit $24 million below the prior year. A soft economic
environment  combined  with mild weather led to lower  demand for  heating,  air
conditioning and plumbing repairs and replacement service. These operations also
experienced lower  construction  activity in both the residential and commercial
sectors.  As noted in the  three-month  comparison,  this business  continues to
focus on new sales and marketing  strategies  that place less reliance on yellow
pages  advertising.  ARS is also  realigning its field  operating  structure and
developing  specific  turnaround  plans for  troubled  locations.  The  combined
franchise  operations  reported a three  percent  increase  in revenue and solid
profit growth,  supported by strong demand for disaster  restoration services at
ServiceMaster Clean and acquisition growth at Merry Maids.

Other Operations  revenue increased to $17 million from $10 million in the prior
year,  primarily due to $6 million in licensing fees received in the sale of the
Terminix United Kingdom operations.  This segment shows a net operating expense,
which increased from the prior year reflecting the increased  investments in the
headquarters   organization  for  Six  Sigma  and  other  initiatives  including
purchasing, marketing, and technology.

                                       20
<PAGE>



FINANCIAL CONDITION

Net cash  provided from  operations  for the first nine months was $246 million,
$103 million in excess of net income, and reflects an improvement of $47 million
over the previous year, before the impact of the Company's  accounts  receivable
securitization  program  and  tax  refunds  in  2001.  Net  cash  provided  from
operations is 72 percent higher than earnings for the nine months and represents
a 24 percent  increase over the $199 million that was reported  last year.  This
increase was driven,  in part, by a $58 million  reduction in the use of working
capital,  primarily at TruGreen ChemLawn and American Home Shield as a result of
better  receivables  and payables  management.  Management  believes  that funds
generated  from  operations  and other  existing  resources  will continue to be
adequate to satisfy ongoing working capital needs of the Company.

Cash and marketable  securities totaled  approximately $253 million at September
30,  2002,   including   approximately  $138  million  of  required   regulatory
investments  at American  Home Shield.  During the second  quarter of 2002,  the
Company  completed the last major phase of the debt reduction  program announced
in October  2001  through the  repurchase  of $218  million in face value of its
corporate  bonds. As a result of continued strong cash flows and the application
of the net proceeds  received from the Company's 2001  dispositions,  total debt
was reduced by $313  million  during the nine month  period.  This  represents a
reduction in debt  outstanding of  approximately  $1.1 billion over the last two
years and the  Company's  lowest level in over five years.  The debt  repurchase
allowed the Company the opportunity to lengthen its maturity profile by focusing
the majority of the repurchase on bonds with shorter  maturities.  Approximately
60% of the Company's  debt now matures beyond seven years and 40% beyond fifteen
years. The Company's first public bond maturity is not due until 2005.

The Company  maintains a three-year  revolving credit facility for $490 million,
which will expire in December  2004.  As of  September  30, 2002 the Company had
issued  approximately  $130  million of letters of credit under the facility and
had unused commitments of approximately $360 million.  The Company also has $550
million of senior  unsecured debt and equity  securities  available for issuance
under an effective shelf registration statement. In addition, the Company has an
agreement to  ultimately  sell, on a revolving  basis,  certain  receivables  to
unrelated  third  party  purchasers.  At  September  30,  2002,  there  were  no
receivables  outstanding that had been sold to third parties. The agreement is a
364-day facility that is renewable at the option of the purchasers.  The Company
may sell up to $65 million of its eligible  receivables  to these  purchasers in
the future and therefore has immediate access to cash proceeds from these sales.
The amount of eligible  receivables  varies during the year based on seasonality
of the business and will at times limit the amount available to the Company. The
Company  also  maintains  operating  lease  facilities  with banks  totaling $95
million that provide for the  acquisition  and  development  of properties to be
leased by the Company.  There is a residual value guarantee of these  properties
up to 82 percent of the fair market value of the  properties.  At September  30,
2002, there was approximately $72 million funded under these facilities.  Of the
$95 million in facilities,  $80 million  expires in October 2004 and $15 million
expires in January 2008. The majority of the Company's vehicle fleet and some of
its equipment needs are leased through  cancelable  operating leases.  There are
residual value  guarantees  (ranging from 70% to 87% depending on the agreement)
on these  vehicles  and  equipment,  which  historically  have not  resulted  in
significant  net payments to the  lessors.  At  September  30,  2002,  there was
approximately $265 million of residual value relating to these leases.

The following table presents the Company's obligations and commitments:
<TABLE>


                                                                              2003 and     2005 and      2007 and
(IN MILLIONS)                                     TOTAL           2002         2004          2006        LATER YEARS
---------------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>           <C>           <C>              <C>
Debt balances                                  $827              $9            $48           $161             $609
NON-CANCELABLE OPERATING LEASES (1)             253              16            102             65               70
---------------------------------------------------------------------------------------------------------------------
Total amount                                 $1,080             $25           $150           $226             $679
</TABLE>

(1)  Includes lease payments and residual value guarantees on leased properties.


                                       21
<PAGE>


There  have been no  material  changes in the terms of the  Company's  financing
agreements  since December 31, 2001. As described in the Company's latest Annual
Report to  Shareholders,  the  Company  is party to a number of debt  agreements
which require it to maintain certain  financial and other  covenants,  including
limitations on indebtedness  and interest  coverage  ratio.  In addition,  under
certain  circumstances,  the agreements  may limit the Company's  ability to pay
dividends and  repurchase  shares of common  stock.  These  limitations  are not
expected to be a factor in the Company's  future  dividend and share  repurchase
plans.  Failure by the Company to maintain these  covenants  could result in the
acceleration  of the maturity of the debt. At September 30, 2002, the Company is
in compliance  with the covenants  related to these debt agreements and based on
its operating outlook for the remainder of 2002,  expects to be able to maintain
compliance in the future.

The assets and  liabilities  relating to the  discontinued  companies  have been
classified  in separate  captions on the  Consolidated  Statements  of Financial
Position.  In the first quarter,  the Company made  approximately $70 million in
tax payments relating to the sale of Management Services.  There were other cash
payments  relating to the wind-down of the  discontinued  operations  which were
offset by cash collected on assets  remaining from these  operations.  Assets of
the  discontinued  operations  have  declined  reflecting  cash  collections  on
receivables  and the sale of fixed assets.  The  liabilities  from  discontinued
operations have decreased  reflecting cash outflows  related to the wind-down of
contracts,  lease termination costs,  workers'  compensation  payments and legal
costs.

Accounts receivable and inventories  increased from year-end levels,  reflecting
general business growth and increased seasonal activity.  Deferred revenues grew
reflecting  increases  in customer  prepayments  for  termite  and pest  control
services  and strong  growth in  warranty  contracts  written at  American  Home
Shield.  Prepaid  expenses,  deferred costs and other assets have decreased from
year-end  primarily  reflecting  the  impact  of the  change in  accounting  for
customer  acquisition  costs at American  Home  Shield,  partially  offset by an
increase in capitalized sales commissions and other direct contract  acquisition
costs relating to more termite baiting and pest control  contracts.  As required
by APB No. 20  "Change  in  Accounting",  the  reduction  in  deferred  customer
acquisition  costs  resulting  from the  change in  accounting  method  has been
reflected as a  cumulative  adjustment  as of January 1, 2002 and prior  periods
have not been restated.

Capital  expenditures  which include  recurring  capital  needs and  information
technology projects are higher than prior year levels reflecting the payments of
the residual value  guarantees  relating to leases for the five assisted  living
facilities sold in the second quarter.  See Note 7 for additional  details.  The
Company has no material capital commitments at this time.

Total  shareholders'  equity was $1.2 billion at September 30, 2002 and December
31,  2001,  reflecting  earnings  which  were  offset  by cash  dividends.  Cash
dividends paid directly to  shareholders  totaled $91 million or $.305 per share
for the nine months ended  September 30, 2002. In October 2002, the Company paid
a fourth  quarter cash  dividend of $.105 per share and declared a first quarter
2003  cash  dividend  of $.105 per share  payable  on  January  31,  2003.  This
quarterly  dividend  payment provides for an annual payment for 2002 of $.41 per
share,  a 2.5%  increase  over 2001.  The Company  approves its actual  dividend
payment on a quarterly basis and continually reviews its dividend policy,  share
repurchase program and other capital structure objectives. Through September 30,
2002, the Company has completed share repurchases totaling $15 million, compared
to $1 million last year. Decisions relating to any future share repurchases will
take various  factors into  consideration  such as the  Company's  commitment to
maintain investment grade credit ratings, general business conditions, and other
strategic investment opportunities.

As  disclosed  in Note 3,  the  Company  has  identified  the  most  significant
accounting  policies  that  impacts  its  financial  condition  and  results  of
operations.  These  policies  relate  primarily to revenue  recognition  and the
deferral  of customer  acquisition  costs.  Except for the change in  accounting
principle at American Home Shield, the policies are the same as discussed in the
2001  Annual  Report.  The  critical  estimates  and  assumptions   required  by
management in order to prepare the financial  statements  were also discussed in
the 2001 Annual Report and in Note 3 in this report.  There have been no changes
in the assumptions or methodologies in 2002.


                                       22
<PAGE>


FORWARD LOOKING STATEMENT

The Company  notes that  statements  that look  forward in time,  which  include
everything other than historical  information,  involve risks and  uncertainties
that  affect the  Company's  results of  operations.  Factors  which could cause
actual  results  to differ  materially  from  those  expressed  or  implied in a
forward-looking   statement  include  the  following  (among  others):   weather
conditions  adverse to  certain  of the  Company's  residential  and  commercial
services businesses;  the entry of additional  competitors in any of the markets
served by the Company;  labor shortages;  unexpected changes in operating costs;
the condition of the U.S.  economy;  the cost and length of time associated with
integrating  or winding down  businesses  and other factors  listed from time to
time in the Company's filings with the Securities and Exchange Commission.





                                       23
<PAGE>








                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The  Company  does  not hold or  issue  financial  instruments  for  trading  or
speculative   purposes.   The  Company  has  entered  into  specific   financial
arrangements  in the normal course of business to manage  certain  market risks,
with a policy of matching  positions  and  limiting  the terms of  contracts  to
relatively short durations.  The effect of financial instrument  transactions is
not material to the Company's financial statements.

The Company  generally  maintains  the majority of its debt at fixed rates (over
95% of total debt at December 31, 2001 and September  30, 2002) and,  therefore,
its exposure to interest rate  fluctuations  is not significant to the Company's
results of  operations.  The payments on the $72 million of funding  outstanding
under the  Company's  real  estate  operating  lease  facilities  as well as its
cancelable  vehicle  fleet and equipment  operating  leases are tied to floating
interest  rates.  However,  the  Company  does not  expect  that  interest  rate
fluctuations  are  likely  to  be  significant  to  the  Company's   results  of
operations.

The Company has several debt and lease  agreements  where the  interest  rate or
rent payable under the agreements  automatically  adjust based on changes in the
Company's credit ratings.  While the Company is not currently expecting a change
in its credit ratings, based on amounts outstanding at September 30, 2002, a one
rating category improvement in the Company's credit ratings would reduce expense
on an  annualized  basis by  approximately  $.7 million.  A one rating  category
reduction  in  the  Company's  credit  ratings  would  increase  expense  on  an
annualized basis by approximately $1.3 million.

The economy and its impact on discretionary consumer spending, labor wages, fuel
costs,  insurance  costs and medical  inflation  rates could be  significant  to
future operating earnings.




                                       24
<PAGE>




                             CONTROLS AND PROCEDURES

The Company's  Chairman and Chief Executive  Officer,  Jonathan P. Ward, and the
Company's  Chief  Financial  Officer,  Steven C.  Preston,  have  evaluated  the
Company's  disclosure  controls and  procedures  within 90 days of the filing of
this report.

Messrs.  Ward and Preston have concluded that the Company's  disclosure controls
and  procedures  provide  reasonable  assurance  that the  Company  can meet its
disclosure  obligations.  The Company's  disclosure  controls and procedures are
based  upon  a  roll-up  of  financial  and  non-financial   reporting  that  is
consolidated in the principal  executive office of the Company in Downers Grove,
Illinois.  The reporting process is designed to ensure that information required
to be  disclosed by the Company in the reports that it files or submits with the
Commission  is recorded,  processed,  summarized  and  reported  within the time
periods specified in the Commission's rules and forms.

There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect these controls subsequent to the
date of their evaluation.


                                       25
<PAGE>




<TABLE>

PART II. OTHER INFORMATION

ITEM 6(A): EXHIBITS

<S>             <C>
Exhibit 99.1    Certification of Chief Executive  Officer Pursuant to Section 1350
                 of  Chapter  63  of  Title  18 of  the  United  States  Code

Exhibit  99.2   Certification of Chief Financial Officer Pursuant to Section 1350
                 of  Chapter 63 of Title 18 of the United States Code

</TABLE>


ITEM 6(B):    REPORTS ON FORM 8-K

A report on Form 8-K was filed on  August  14,  2002  reporting  under  "Item 9.
Regulation FD Disclosure".  In this filing,  the Company reported that on August
13, 2002 it had filed sworn statements of its Chief Executive  Officer and Chief
Financial  Officer (the "Sworn  Statements")  with the  Securities  and Exchange
Commission (the  "Commission")  pursuant to the  Commission's  Order of June 27,
2002. These Sworn Statements were included as exhibits to the Form 8-K.





                                       26
<PAGE>









                                       SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  November 14, 2002


                      THE SERVICEMASTER COMPANY
                      (Registrant)

                      By:                    /S/STEVEN C. PRESTON
                         ------------------------------------------------------

                                                 Steven C. Preston
                      Executive Vice President and Chief Financial Officer



                                       27
<PAGE>




                                     CERTIFICATION

I, Jonathan P. Ward, certify that:

1.   I have reviewed  this  quarterly  report on Form 10-Q of The  ServiceMaster
     Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)   designed such  disclosure  controls and  procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

b)   evaluated the  effectiveness  of the registrant's  disclosure  controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     quarterly report (the "Evaluation Date"); and

c)   presented in this quarterly report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

a)   all  significant  deficiencies  in the  design  or  operation  of  internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

b)   any fraud,  whether or not  material,  that  involves  management  or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  November 14, 2002

                                                   /S/ JONATHAN P. WARD
                                                   Jonathan P. Ward
                                                   Chairman and Chief
                                                   Executive Officer





                                     CERTIFICATION

I, Steven C. Preston, certify that:

1.   I have reviewed  this  quarterly  report on Form 10-Q of The  ServiceMaster
     Company;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)   designed such  disclosure  controls and  procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

b)   evaluated the  effectiveness  of the registrant's  disclosure  controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     quarterly report (the "Evaluation Date"); and

c)   presented in this quarterly report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

a)   all  significant  deficiencies  in the  design  or  operation  of  internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

b)   any fraud,  whether or not  material,  that  involves  management  or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  November 14, 2002

                                                          /S/ STEVEN C. PRESTON
                                                            Steven C. Preston
                                                       Executive Vice President
                                                     and Chief Financial Officer